TOLEDO, Ohio – The U.S. Treasury Department has settled a lawsuit brought by KindHearts for Charitable Humanitarian Development, an Ohio-based charity that was under investigation for alleged ties to terrorism.

After a string of legal victories for the group, including court findings that the government’s actions violated its due process and Fourth Amendment rights, the government has agreed to remove it from a blacklist and let it distribute funds raised for humanitarian causes consistent with the intent of donors. Details of the agreement were announced today.

This is the first time the government has agreed to de-list a frozen organization as a result of a lawsuit, and to then allow it to distribute its assets.

“This settlement is a tremendous victory for KindHearts and the rule of law,” said Alexander Abdo, staff attorney with the American Civil Liberties Union’s National Security Project. “No American charity should have to endure the unconstitutional treatment that KindHearts was subjected to. We hope the government now realizes that, as the court held, the executive branch cannot simply ignore the Constitution in the name of national security.”

The Treasury Department froze KindHearts’ assets and effectively shut down the charity in February 2006, based on secret evidence and without any finding of wrongdoing, pending an investigation into whether to label the charity a “Specially Designated Global Terrorist.” The government instituted the freeze without a warrant or probable cause, and without providing the charity a chance to defend itself. KindHearts sued in 2008 in a lawsuit brought by the ACLU, the ACLU of Ohio and several civil rights attorneys.

“The Treasury Department settled only after a federal court ruled that the designation process denied KindHearts notice and a fair opportunity to defend itself, the bedrock requirements of fair process,” said Georgetown Law Professor David Cole, co-counsel for KindHearts. “If the Treasury Department wants to use this process in the future, it will need to amend its procedures to bring them into conformity with the Constitution.”

In a landmark 2009 ruling, a federal court sided with KindHearts, holding that the Treasury Department violated the Constitution by freezing KindHearts’ assets without a warrant based on probable cause. The court barred the Treasury Department from designating KindHearts a terrorist group unless it provided KindHearts real notice of the charges against it and a chance to defend itself, including meaningful access to or summaries of the classified information the government was relying on.

The ruling also ordered the government to demonstrate that it had probable cause to freeze KindHearts’ assets in 2006. The government opened settlement discussions on the eve of being forced to make its case in court.

After paying creditors, KindHearts will have close to $1 million to donate to the U.N. World Food Programme, UNICEF and Mercy Corps to support humanitarian work in Pakistan, the West Bank and the Gaza Strip.

“From 2002 through 2006, KindHearts distributed food, clothing and school supplies to those in need around the world. Although we welcome our government’s decision to abandon its unconstitutional effort to label KindHearts a terrorist organization, the sacrifices made by KindHearts’ employees and their families, donors and beneficiaries must not be forgotten,” said Jihad M. Smaili, KindHearts board member and attorney. “Although we remain saddened by our government’s conduct in shutting down KindHearts, we are pleased that those most in need will finally receive some help based on our donors’ wishes. But most importantly, our government is reminded today that its power ought to follow justice, not precede it.”

Under the settlement, the government will also pay KindHearts’ attorneys’ fees, which under federal law are due only when the government’s position is not “substantially justified.” The settlement notes that KindHearts, which has been shut down for six years, “has independently determined to close down because further charitable work would be best pursued under other auspices.” The agreement specifies that KindHearts’ board members are free to “form[] a new organization to engage in charitable activity in the Middle East or elsewhere.” Some of KindHearts’ board members are considering whether to launch a new charity to continue their charitable activities.

In addition to Abdo and Cole, attorneys on the case are Ben Wizner and Hina Shamsi of the ACLU, Lynne Bernabei and Alan Kabat of Bernabei & Wachtel, PLLC, and Fritz Byers.